by Tim Mullaney and Kevin McCoy, USA TODAY

by Tim Mullaney and Kevin McCoy, USA TODAY

NEW YORK - JPMorgan Chase will pay $2.6 billion to settle criminal and civil charges that it failed to alert authorities about warning signs that might have stopped Bernard Madoff's Ponzi scheme long before the scam's 2008 collapse.

In the latest of several embarrassing settlements, the nation's largest bank Tuesday avoided prosecution by acknowledging it turned a blind eye to suspicions about Madoff's financial operation for years - even while rushing to withdraw millions of its own funds before the financier's scheme imploded.

"JPMorgan - as an institution - failed, and failed miserably," said Manhattan U.S. Attorney Preet Bharara at a news conference announcing the settlements. "The bank connected the dots when it came to its own profits, but was not so diligent when it came to its legal obligations."

The global bank will pay $1.7 billion to settle the reporting violations, said Bharara, with "every penny" of that amount helping repay the thousands of ordinary investors, celebrities, charities and others burned by Madoff's $17.3 billion fraud.

JPMorgan also will pay $350 million to settle a related case by the Office of the Comptroller of the Currency and $543 million to resolve U.S. Bankruptcy Court actions by the trustee seeking Madoff assets on behalf of burned investors.

About $11.9 billion had been recovered prior to the new settlements.

Bharara said the settlements include the highest Department of Justice penalty for violations of the federal Bank Secrecy Act and the second-largest forfeiture overall.

Under the deal, prosecutors agreed to wait two years before filing charges that JPMorgan failed to have proper protections in place to spot and prevent money laundering, and failed to make required reports to U.S. authorities of repeated transactions that appeared to lack any business purpose. The bank did make such disclosures to British regulators shortly before Madoff's fund collapsed in 2008.

In exchange, the bank acknowledged its actions were improper and agreed to upgrade compliance procedures. If JPMorgan lives up to its obligations under the deferred prosecution agreement, the government will seek to dismiss the charges in two years.

Bharara cited evidence that JPMorgan had suspicions about Madoff's operation as early as December 1998, when a bank fund manager warned the investment returns were "possibly too good to be true."

Despite other internal warnings in succeeding years, the bank failed to file "suspicious activity reports" with U.S. authorities, as mandated under federal law. The only reports submitted by JPMorgan were filed in the United Kingdom just weeks before the scam collapsed, prosecutors said.

Yet the bank pulled $275 million of its own from "feeder funds" that invested in Madoff's investment advisory business less than two months before it collapsed, prosecutors said.

"We recognize we could have done a better job pulling together various pieces of information and concerns about Madoff," the bank said in a statement. "We do not believe that any JPMorgan Chase employee knowingly assisted Madoff's Ponzi scheme."

Madoff pleaded guilty to criminal charges in 2009. He's serving a 150-year prison term. Five former Madoff employees are now on trial on federal charges they knowingly aided the fraud. They have pleaded not guilty.

While crediting authorities for the settlements, Dennis Kelleher, head of markets watchdog Better Markets, criticized the absence of charges against bank officials. "Banks do not commit crimes; bankers do," he said.

Bharara said the bank's failures were institutional and predicted the resolution would serve as a deterrent for any other banks that might ignore reporting requirements.